It’s amazing to me, but looking back over nearly a decade of writing I find posts that still impress, with information that is as useful now as when it was written. Golden Oldies is a collection of what I consider some of the best posts during that time. Read other Golden Oldies here
I’m no happier about the AIG and other bonuses paid to screwed up Wall Street banks, but I’m not sure why any of us are surprised.
“In the largest 25 corporate bankruptcies between 1999 and 2002, while hundreds of billions of dollars of investor wealth and over 100,000 jobs disappeared, the Financial Times found the “barons of bankruptcy” made off with $3.3 billion.”
Giant compensation packages, guaranteed bonuses and platinum parachutes are excused by Boards and executives as necessary to attract the “best and brightest,” but here’s what’s really going on.
The ‘name’ demands outsize compensation/stock options/guaranteed bonus/etc. in order to validate their ‘brand’.
Those responsible for hiring not only meet the demands, but even exceed them in an effort to attain or sustain the company’s reputation as a better home for ‘stars’—the more stars you have the greater the bragging rights— mine’s bigger than yours in high school locker room talk.
Now let’s consider the folly of this attitude.
Those hiring often seek a name brand in the mistaken belief that the brand comes with a warranty that guarantees good results.
But no matter who you hire you’re actually paying for their past performance, which is always influenced by
circumstances—boss and company positioning in its market and industry
environment—culture and colleagues;
and let us not forget that minor factor
the economy.
The hiring mindset is that everything the brand accomplished was done in a total vacuum and dependent only on the brand’s own actions, thereforechanging every single surrounding factor will have no impact on performance.
Put like that it sounds pretty stupid, doesn’t it.
This is one of the prime reasons that so many CEOs bring their ‘own team’ over when they move, as do managers all the way down the food chain—they know they didn’t do it alone.
CEOs aren’t like movie and rock stars whose very names draw consumers into spending money—nobody ever bought a product from GE because Jack Welch was CEO, nor do they carry Jobs’ iPods—so why pay them that way?
Moreover, assuming that performance occurring during an expansion is a valid yardstick for performance in general, let alone a downturn, is sheer idiocy.
You have only to remember the difficulties faced by people whose management skills were honed between 1991 and 2000, the longest expansion in our history. When the recession hit in March of 2001 they had no experience whatsoever of how to drive revenue or manage in a down economy.
That recession and the previous one in 1990 lasted only 8 months each. The longest recession we’ve had was 2 years, January-July 1980 and July 1981-November 1982, and that one had a 12 month break in it. This means there are a very small number of managers with any actual experience managing in anything even close to what’s happening now.
The current recession officially started in December 2007, so it’s already 15 months old and the end isn’t in sight.
What experience makes these folks the ‘best and brightest’ for today’s world?
Just what the hell are companies still guaranteeing oversized compensation and exorbitant exit packages when now is definitely the time to pay for future performance—no guarantees.
The wealth of the richest 62 people grew by more than half a trillion dollars in that last half-decade, while the wealth of the poorest 50 percent of people globally decreased by more than $1 trillion during the same period.
A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here
Aristotle produced a good bit of wisdom in the course of his life, much of which can be tweaked to apply to subjects other than those originally intended. For instance,
“A tyrant must put on the appearance of uncommon devotion to religion. Subjects are less apprehensive of illegal treatment from a ruler whom they consider god-fearing and pious. On the other hand, they do less easily move against him, believing that he has the gods on his side.”
All you have to do to this one is singularize and capitalize ‘gods’ and it’s just as applicable today as it was when he said it.
Tweak the words differently and you have a profile that fits more founders than you might think.
A founder must put on the appearance of uncommon devotion to startup gurus. Employees are less apprehensive of invalid treatment from a leader whom they consider guru-savvy and humble. On the other hand, they do less easily walk, believing that he has the gurus on his side.
In a celebrity-driven culture and considering the hype around global startup salvation, you might start believing that founders are, indeed, some kind of superhero, different from the rest of us, and worthy of adoration.
But you would be wrong.
“Throughout history, narcissists have always emerged to inspire people and to shape the future. The ones who lead companies to greatness are those who can recognize their own limitations.” –Michael Maccoby (2000 Harvard Business Review article about the pros and cons of narcissistic leaders.)
A Fortune article, with heavy input from Zachary First, managing director of The Drucker Institute, does a good job kicking holes in the idea.
Star CEOs grow dangerous when they see their success as destiny, their place at the head of the pack as the only path possible, rendering all of their choices justified. The best leaders might enjoy the red carpet, that’s fine, as long as they understand that being the best fit for the CEO job is a relative status — relative to the needs of the rest of the people in an organization at a specific moment in time.
And fame, no matter how great it may feel, does not equal infallibility.
Steve Jobs is considered a star CEO, but it’s questionable whether he would be if he hadn’t brought in John Sculley, been dumped and then come back.
While it’s not good to believe you’re the smartest person in the room it is far worse to actually be the smartest.
There are many things you can do if you want to stay grounded; here are the basics.
It’s grown 25 percent a year for seven consecutive years to more than 250 employees in 2010 and named one of the best US firms to work for by Accounting Magazine.
…the firm is poised to go national but the guy who founded and ran the firm for eight years is no longer leading the charge. Was that his choice? It turns out it was not. David Deeter, the founder, got bounced down the organization chart.
While that may be the kind of growth investors salivate over, it often requires a “bet the company” mentality and matching action that’s not always appreciated by others.
Employees get scared, but you, the entrepreneur, keep their heads in the clouds and you keep thinking, boy, isn’t this great? Why? Because you are having the time of your life.
And therein lies the greatest danger for entrepreneurs who wants to stay at the helm.
Entrepreneurs start with a vision and do a pretty good job communicating it to the original team or they wouldn’t have bought in.
As time goes by and the organization grows founders get “busy” and start counting on those under them to communicate their vision to the new hires.
Sometimes the vision changes and the changes aren’t communicated, so the vision shared is no longer the current vision or, worst of all, the driving force mutates into one of growing just because you can.
The article author says,
Show them you can be both an entrepreneur and a chief executive. How? Let the employees see that you put the company’s interests ahead of your ego and your own personal interests. Otherwise, the real talent will leave — or boot you out…
but you have only to look at the corporate merger and acquisition debacles of the last few decades to know that too many corporations, both public and private, are driven by CEO ego and personal interest.
The best advice is to not only stay close to your people, but also to your mirror and remember you are not a god.
Today is the first day of the last month of the year and it finds me in a not very business-serious frame of mind. That means the next few Saturdays probably won’t have much in the way of business-redeeming content, but that doesn’t mean they won’t be interesting or just plain fun.
Knowing that my readers share my concern for the downtrodden I thought it would be a nice gesture to check and make sure that the folks who toil in the canyons of Wall Street on the latest efforts to screw up the economy aren’t being mistreated. Nope! Looks like they are doing just fine.
The report showed that total compensation on Wall Street last year rose 4 percent, to more than $60 billion. That was higher than any total except those in 2007 and 2008 — before the financial crisis fully took its toll on pay. The average pay package of securities industry employees in New York State was $362,950, up 16.6 percent over the last two years.
Now that we know their income is safe let’s take a look at how they’re spending it and the difficulties they face starting with housing.
After paying $15.5 million last November for a 3,000-square-foot apartment at the Carlyle, (…) there is the little matter of the $455,352 a year that Mr. Grey, the chairman of Paramount Pictures, will have to cough up in maintenance charges.
But don’t fret for Mr. Grey; he didn’t buy a home he actually bought Art (with a capital a)
“Art is what people are willing to pay for, and an apartment like this is like a piece of art,” the Long Island real estate developer Steven Klar told a colleague of mine at The Times, Alexei Barrionuevo, in late July as he listed his penthouse on West 56th Street for $100 million.
“When we’re cruising and burning 100 gallons of fuel an hour, I don’t think it’s costing me $300 an hour,” said Bob Schmetterer, the former chairman and chief executive of Euro RSCG Worldwide, the giant advertising and marketing company, referring to his 80-foot Marlow Explorer. (It holds 3,000 gallons, and he was moored aboard it in Maine when we spoke.)
The site’s founders, Christian Leone and Leah Park, both Gilt Groupe veterans, aim to put a haute spin and a higher-than-usual price on their wares by applying to consignment shopping roughly the same precepts that govern the sale of art and antiques: in short, calling out an item’s provenance to close the deal.
Which brings us to next Saturday and a look at unusual holiday gifts; some of which even the rest of us can afford.
A Friday series exploring Startups and the people who make them go. Read allIf the Shoe Fits posts here
This is not about politics, but when I read a description of Karl Rove in an Op-Ed column I found amusement as to how easily you could change the word “consultant” to “entrepreneur” and “buy advice” to “invest in/join the company.”
And yet another is that prophets are people too, blinded by their own self-interest, swayed by their own self-promotion, neither omniscient nor omnipotent. (…) Of course arrogance, or at least self-assurance, is a consultant’s stock in trade. That’s what we buy when we buy advice: not just the content of it but the authority, even the grandiloquence, with which it’s delivered.
Finding needs, taking risks, starting companies is the basis of what entrepreneurs do, but, when they do it has enormous impact on their potential for success.
The problem is that the best ‘when’ is a function of hindsight and history.
But as we all know, success breeds arrogance, not always, but too often.
Martha Stewart, who controls 90% of the voting rights of Martha Stewart Living Omnimedia and, as the old saying goes, spends her days cutting off her nose to spite her face, is a good example.
Her net worth is inextricably tied to the value of the shares. That would seem obvious to everyone except, perhaps, Ms. Stewart herself. She continues to collect lavish multimillion-dollar compensation and perks while her company teeters under the weight of huge losses, its shares trading for a fraction of their former value.The paradox is that if the stock had risen even $1 a share in recent years, Martha Stewart would be wealthier now than if she had taken only nominal compensation from the company.
And arrogance brings us back to the description above.
Option Sanity™ undermines arrogance. Come visit Option Sanity for an easy-to-understand, simple-to-implement stock allocation system. It’s so easy a CEO can do it.
Warning.
Do not attempt to use Option Sanity™ without a strong commitment to business planning, financial controls, honesty, ethics, and “doing the right thing.” Use only as directed.
Users of Option Sanity may experience sudden increases in team cohesion and worker satisfaction. In cases where team productivity, retention and company success is greater than typical, expect media interest and invitations as keynote speaker.
Today’s articles are focused on executives, but, as usual, the content is applicable to all levels of management, as well as non-management.
Let’s start with a question; is it possible to effectively manage electronically? Research going back to the 1940s shows that it’s not.
Managing is not a science; it is a subtle and nuanced practice, learned mostly on the job, through paying close attention to gestures and tone of voice. (…) Information technology can and should expand your range of communication, but cannot be a substitute for interactions that build trust, share vision, and enhance community..
“But we humans have found ways to not feel so bad about it when we behave a certain way — we basically disconnect these self sanctions.” (…)”If you were to go to church or temple, that’s a moral domain. People tend to not think about business as a moral domain.” — David Mayer, management professor at the University of Michigan’s Ross School of Business
For leaders to establish those policies, they’re going to have to fear the consequences themselves. (…) By paying attention to how the environment affects our choices, people can begin to treat their ethics as a skill to develop and continue developing, even as students graduate, enter the workforce, and become executives.
But [after two decades] Beth Brooke was growing tired of hiding, particularly after being tapped to head Ernst & Young’s diversity and inclusion efforts.
I’ve been planning to do a varied look at compensation, but I didn’t realize that idea started with something I read in January and here it is June. I reviewed all the comp articles I saved and thought I’d share the more unusual ones.
There were actually two January articles within a day of each other.
But as one of the nation’s foremost financial compensation specialists, Mr. Johnson is among a small group of behind-the-scenes information brokers who help determine how Wall Street firms distribute billions of dollars to their workers.
The other was a Wharton look at the effect of excessive frugality on companies’ long-term health. My main reaction reading it was “ya think!?”
When workers feel that “the company is doing fine, but somehow I’m doing worse, at some point there has to be some dissatisfaction with that. It’s not sustainable,” suggests Wharton management professor Adam Cobb, who studies labor, worker benefits and income inequality. “I think there’s a general feeling of: This system is rigged and not in my favor.”
After two straight years of wages remaining nearly flat, tech professionals on average garnered salary increases of more than 2%…
A reminder that the jobs of the truly rich aren’t like ours comes from Rupert Murdoch who got a huge raise, in spite of legal bills from the ongoing hacking scandal being nearly a billion dollars in February; considering the continuing revelations they’ve probably surpassed that by now.
“I don’t believe in them,” says Jens Begemann, the 35-year-old co-founder and chief executive officer of Wooga. “If people are not motivated, you may need bonuses to make sure they work. But I don’t think that’s the right incentive.”
It used to be that people gave up some salary for the opportunity to work on bleeding edge products in companies with little-to-no structure, like-minded people and the chance to hit the jackpot through stock options—but no more.
Going to work for a start-up used to be a gamble and a sacrifice. You’d have to work longer hours for a lot less money than you would at a publicly held company. (…)To compete for talent these days, start-ups can’t skimp too much in salary negotiations.
There is much written about the rising wrath of shareholders with regards to CEO pay, but little written about a potent subgroup—shareholders who are also employees.
One potentially powerful class of shareholders — employees — seems to be rousing, too. And, to the degree that employee-shareholders band together to have their say on the boss’s pay, they can be a formidable force.
Finally, Apple’s Tim Cook raised the bar for all highly compensated CEOs Thursday; not because of a higher paycheck or by taking a symbolic $1 annual salary, but by refusing part of what he is owed.
In a regulatory filing Thursday, Cook stated that he would forgo around $75 million in dividend payments he otherwise would have revived for the 1.125 million stock awards is set to get over the next several years.
I ran into the following quote from Adam Smith and thought he’d be a good subject for today’s Quotable Quotes. It’s too bad that Smith, known as the godfather of free market capitalism, doesn’t carry more weight with our bankers and politicians, although Occupy Wall Street seems to get it.
“The disposition to admire and almost worship the rich and the powerful is the great and most universal cause of the corruption of our moral sentiments.”
All those bankers who have refused to provide the credit necessary for SMB to move forward might want to consider these wise words, “It is not by augmenting the capital of the country, but by rendering a greater part of that capital active and productive than would otherwise be so, that the most judicious operations of banking can increase the industry of the country.”
Sadly, the world has changed to the point where customer outrage has little to no effect, although Smith’s words still ring true for some, “The real and effectual discipline which is exercised over a workman is that of his customers. It is the fear of losing their employment which restrains his frauds and corrects his negligence.”
This struck me as a great truth considering the ideologues that pass for politicians these days, “I have never known much good done by those who affected to trade for the public good.”
It’s not fair to bash bankers and pols and let the corporate world off Smith’s hook, so here’s one just for them, “Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.”
Conspicuous consumption was out of style, or at least underground, after the 2008 crash, but is back in full force now proving that Smith understood exactly what drives them, “With the greater part of rich people, the chief enjoyment of riches consists in the parade of riches.”
Finally, the so-called 1% would do well to remember this, “No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.”
1) Create an organization where those who manage others are hired for their ability to manage well, supported to get even better at managing, and held accountable and rewarded for doing so.
2) Then be clear about what you’re trying to accomplish as an organization – not only in terms of financial goals, but in a more three-dimensional way. What’s your purpose; what do you aspire to bring to the world? What kind of a culture do you want to create in order to do that? What will the organization look, feel and sound like if you’re embodying that mission and culture? How will you measure success? And then, once you’ve clarified your hoped-for future, consistently focus on keeping that vision top of mind and working together to achieve it.
Yesterday’s Ducks in a Row focus was Greg Smith and his resignation from Goldman Sachs. Greg resigned because he felt the culture had deteriorated to the point that he could no longer ethically tell candidates that it’s a great place to work—Goldman’s focus is squarely on maximizing their own profit and clients be damned. (The story is all over traditional and social media.)
At the end of his resignation Greg says,
Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist. Weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again, so people want to work here for the right reasons. People who care only about making money will not sustain this firm — or the trust of its clients — for very much longer.
The bold is mine and that thought fits the “if you learn nothing else…” admonishment.
But I will go a step further—
You can’t attract great clients without great talent, so even if you make money in the short-term you will die in the long-term—bereft of both talent and clients.
Great culture attracts great talent; great talent attracts great clients; great clients spend great money—over and over and over.
Entrepreneurs face difficulties that are hard for most people to imagine, let alone understand. You can find anonymous help and connections that do understand at 7 cups of tea.
Crises never end.
$10 really does make a difference and you’ll never miss it,
Aristotle produced a good bit of wisdom in the course of his life, much of which can be tweaked to apply to subjects other than those originally intended. For instance,
I ran into the following quote from Adam Smith and thought he’d be a good subject for today’s Quotable Quotes. It’s too bad that Smith, known as the godfather of free market capitalism, doesn’t carry more weight with our bankers and politicians, although Occupy Wall Street seems to get it.
Last December a post entitled 
